AM Best Affirms Credit Ratings of Delphi Financial Group, Inc. and Its Subsidiaries

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) “aa” of the life/health subsidiaries of Delphi Financial Group, Inc. (DFG) (Wilmington, DE): Reliance Standard Life Insurance Company (Schaumburg, IL) and First Reliance Standard Life Insurance Company (New York, NY) (together referred to as Reliance Standard), as well as DFG’s property/casualty subsidiaries: Safety National Casualty Corporation, Safety Specialty Insurance Company (both domiciled in St. Louis, MO) and Safety First Insurance Company (Chicago, IL) (together referred to as Safety National). DFG is a direct subsidiary of Tokio Marine & Nichido Fire Insurance Co., Ltd., whose ultimate parent is Tokio Marine Holdings, Inc. (Tokio Marine), Japan’s largest non-life insurance organization.

Concurrently, AM Best has affirmed the Long Term ICR of “a” and the existing Long-Term Issue Credit Ratings (Long-Term IR) of DFG. Lastly, AM Best has affirmed the Long-Term IRs of “aa” on the outstanding medium term notes issued under the funding agreement backed-securities (FABS) program of Reliance Standard Life Global Funding II. The outlook for these Credit Ratings (ratings) is stable. (Please see below for a detailed list of the Long-Term IRs.)

The ratings of Reliance Standard reflect its balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, neutral business profile and very strong enterprise risk management.

Reliance Standard’s ratings also primarily reflect a high degree of integration and strategic importance to its ultimate parent, Tokio Marine. In addition, the company maintains a very strong level of risk-adjusted capitalization and favorable operating results, despite some spread compression within its interest-sensitive annuity business. Reliance Standard’s operating results increasingly have been driven by a significant rise in investment income, attributable to strong growth in its retirement services business, and more recently by improved morbidity in its group long-term disability and stop loss insurance segments. The ratings also consider Reliance Standard’s very strong risk management capabilities, a reasonable level of financial and operating leverage and favorable interest coverage ratios at DFG, its intermediate holding company.

Partially offsetting these positive rating factors are elevated levels of higher risk and less liquid assets within its general account investment portfolio, including commercial mortgage loans. These assets currently represent approximately 200% of capital and surplus. The company’s exposure to below-investment-grade bonds remains at just under 100% of capital and surplus and more than 12% of invested assets, which is well above industry averages. While the company’s overall liability profile has shifted more toward interest-sensitive annuities, which AM Best views as a less creditworthy product line, spreads remain favorable despite some spread compression due to the prolonged low interest rate environment. AM Best expects Reliance Standard’s earnings to remain favorable over the near to medium term; however, they may be pressured if interest rates decline or remain at current levels.

The ratings of Safety National reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, neutral business profile and very strong enterprise risk management. Safety National ratings also reflect its strong risk-adjusted capitalization, historically profitable overall operating performance and specialized market profile as an industry leader in excess workers’ compensation. The ratings also take into account Safety National’s strategic role in the organization and the commitment from DFG and Tokio Marine to support ongoing operations. Partially offsetting these positive rating factors are ongoing adverse development attributed to the company’s nature of business and the group’s somewhat constrained business profile, as a significant amount of its premiums is generated from excess workers’ compensation. Despite these concerns, the ratings recognize Safety National’s solid overall profitability and an expectation of continued generating of retained earnings.

The following Long-Term IRs have been affirmed with a stable outlook:

Delphi Financial Group, Inc.—
-- “a” on $250 million 7.875% senior unsecured notes, due 2020
-- “bbb+” on $175 million fixed/floating rate junior subordinated debentures, due 2037

The following Long-Term IRs have been affirmed with a stable outlook:

Reliance Standard Life Global Funding II— “aa” program rating
-- “aa” on all outstanding notes issued under the program

The following Long-Term IRs have been assigned with a stable outlook:

Reliance Standard Life Global Funding II—
-- “aa” on $300 million 3.309% senior secured medium term notes, due 2021
-- “aa” on $400 million 2.625% senior secured medium term notes, due 2022
-- “aa” on $350 million 3.850% senior secured medium term notes, due 2023

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry. Visit www.ambest.com for more information.